CRE Experts Pessimistic About More Rate Cuts in 2025
As 2025 approaches, optimism is high in the commercial real estate (CRE) industry, thanks to recent interest rate cuts by the Federal Reserve. However, not everyone is convinced that further cuts are likely.
At a ULI New York panel, Lisa Pendergast, Executive Director of the Commercial Real Estate Finance Council, expressed doubts about additional rate cuts, citing the Fed’s caution to avoid triggering inflation, which spiked to 9.1% after the pandemic. L.D. Salmanson, CEO of real estate software firm Cherre, echoed this sentiment, noting that any shift in Fed policy would require significant changes in leadership.
Despite recent rate cuts, borrowing remains costly, with rates ranging from 5.5% to 7%, complicating the CRE market. Pendergast pointed out that many large deals are being extended rather than refinanced. Salmanson warned that the high cap rates (around 7%) are unfavorable for development, urging a return to rates of 4-5%.
Beyond borrowing challenges, Salmanson raised concerns about economic policies under a potential second Trump term, particularly on immigration. He warned that halting immigration could lead to higher labor costs, exacerbating inflation.
While the outlook is mixed, there is hope in deregulation. Pendergast believes that a Trump administration could create a more business-friendly regulatory environment, easing the burden on CRE players.
Some are more optimistic, with panelists like Sarah Hawkins of Hines noting a resurgence in demand for CMBS deals, signaling a potential recovery in the debt markets and overall CRE activity in 2025.
Source: GlobeSt.